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COCOA

For decades, cocoa has been the subject of debate, policies, international agreements, physical and financial contracts. The Aztecs and Mayas had been right using, as early as the 600s, the cocoa bean as a coin, as money. Even today, cocoa is one of the world's major commodities, listed on the stock market just like gold, oil, the dollar or US Treasury Bonds. A cocoa bean whose price evolves, certainly, according to its own market fundamentals - supply and demand - but also according to the moods, rumors and intuitions of investors, speculative or not. A cocoa price that is all the more volatile as it is listed on the financial markets of London and New York, allowing market participants to juggle between the two, to arbitrate, often based only on fluctuations between exchange rates .... Not to mention the impact of the trigger levels, leading to the automatic buying or selling of cocoa contracts.

At a time of sustainability, growing consumer concerns, NGOs, lobby action relating to environment, child labor, social issues, at a time when, in Europe, people are worried about migration, about these young people who dream of a different world, to live well, to earn money, to live in citier rather than sweating in fields, we begin to hear - perhaps not yet to listen - those who want to put the cocoa farmer at the center stage of the debate on the supply chain, from the bean to the chocolate bar.

This implies to debate and reflect not only on the organization of the sector and the market, but also on the logics, on the automatisms of reasoning and operation. The evidence of the cocoa market may not be immutable.

The commodafrica.com team wishes you a good reading and will be very interested in your feedback. This dossier is on our website www.commodafrica.com

CROSS REFLEXIONS ON THE PRICE DETERMINATION OF COCOA

“Producers, too, need to live"

Over the years, there has been concern about the availability of cocoa in the face of growing demand, good farming techniques, the quality of beans for making good chocolate, child labor in plantations, the impact of cocoa farming on the environment, etc. Today, we start to consider the producer, simply, if he manages to live from his work, to have access to health, to put his children to school, in short to have a certain quality of life. For this, we must review each of the determinants of the market and the price of cocoa, with a fresh look.

Since the end of January, cocoa prices on the London futures market have increased by almost 35%. Hope is reborn after 18 months of descent into hell : a tonne of beans fell from a high of £ 2,577 on July 13, 2016 to a low of £ 1,336 on December 5, 2017. The market was still at £ 1 380 on January 19, 2018 before starting to rise again, reaching £ 1,865 on May 24, about $ 2,480. Today, it is at a price level that is in the $ 2,000 to $ 3,000 range. Steve Wateridge, managing partner of Tropical Research in London, estimates that it is the cocoa market’s equilibrium price with respect to price trends over the last ten years. «Above $ 3,000 on the international market, we boost production and kill consumption, below $ 2,000, we boost consumption and production is impacted,» he summed up at the World Cocoa Conference organized by the International Cocoa Organization (ICCO) in Berlin from 22 to 25 April (read our information).

Figures that speak for themselves

This rise in prices is excellent news. But the fall was harsh in 2016-2017 and this led producing countries, once again, to think about something else, other mechanisms, other market logic, other alliances. This, all the more so, as the Executive Director of ICCO Jean-Marc Anga reminded us that the serious zone of turbulence was not experienced in the same way by the various actors in the sector. Thus, between 2015 and 2017, the average price of the chocolate bar rose from $ 14.22 to $ 14.75 while the price of the kilo of cocoa beans paid to the producer fell on average from $ 3.20 to $ 2.01. This gap allowed the cocoa and chocolate products industry to rake in $ 3.5 billion. In the end, the consumer did not benefit from the drop in the world price of cocoa and the producer experienced it full force, without cushion provided by the downstream to cushion his fall.

Another player who did not suffer from the fall, continued Jean-Marc Anga in Berlin, were governments of consumer countries. The global chocolate market is estimated at $ 100 billion, with producers earning only $ 6 billion while consumer governments would get $ 15 billion, including through the levy of VAT on cocoa products.

That said, he continues, there is something disturbing to think that 85% of the world supply of cocoa emanates from only six countries around the world -Côte d’Ivoire, Ghana, Cameroon, Nigeria, Indonesia, Ecuador- 73% of which comes from only four African countries, and this handful of countries can not influence world prices. They declare themselves as undergoing and not dictating prices. However, their interlocutors - the actors at the other end of the chain - are easily identifiable since, again, only a handful holds a dominant position: the four largest manufacturers of chocolate represent 55% of the world’s manufacturing and the four largest large traders 40% of the world trade.

The impossible dialogue?

So why this lack of dialogue both between producing countries, and between them and the downstream of the sector?Producer countries are still in a competition logic, even if the dialogue initiated since March between Côte d’Ivoire and Ghana, or 63% of world production, is promising (read our information). We are at the beginning of the process of dialogue and the future will tell if the political will, at the highest level, is real and ambitious. For now, it is question of coordination of the announcement of guaranteed prices to the planter at the beginning of the crop year, measures to reduce cross-border fraudulent flows, joint research, joint study on the storage of beans to have a taken on the market.

But, already, we see that neither Nigeria nor Cameroon is included in the process. Nigeria (see the interview with Sayina Riman, president of the Cocoa Association in Nigeria) is focused on developing its own domestic market and not so much joint action with its Ivorian and Ghanaian counterparts. Cameroon, on the other hand, seems to regret not being included. «Today, it is necessary that the producing countries harmonize and coordinate their policies. Otherwise we will play against each other», says the Minister of Trade of Cameroon, Luc Magloire Mbarga Atangana. "Cameroon repeated last year in Brussels and again in Berlin that it is not necessary to to proceed by exclusion, we must not only have the bigger ones, it is necessary that all the producing countries come together and understand that their interests are common».

A common approach that makes all the more sense in the perspective of the continental free trade zone that was launched in Kigali in March, he recalled (read our information). An internal African market that represents 1.2 billion people facing some 500 million in Europe and 300 million in the United States. «The African market is over a billion, certainly with a lower purchasing power but the market exists, and logistical costs should be lower because of the proximity of supply.» For Sayina Riman, president of the cocoa association in Nigeria, the calculation is simple: if only 20% of the population of Nigeria consumes at least 250 grams of cocoa per month, it will already absorb half of the current production from the giant of Africa. So, imagine if these 250 gr are consumed every 15 days or by 30 or 40% of the population of the country ... (read the article Nigeria below).

But one wonders : how is it that producers and downstream actors do not manage to dialogue so that the very foundation of sustainability in the sector - which is a fair price to the producer - is assured? Apparently, because multinationals refuse to raise the issue of prices for fear of falling under the yoke of antitrust laws. «Antitrust laws exist to ensure that there is no agreement between industries to the detriment of the consumer. They protect the consumer but not the producer. To put forth antitrust laws so as not to discuss prices, is not a good argument», says Jean-Marc Anga.

Iconoclastic hypotheses

So, taking all this into consideration, what can be done so that producing countries and the producers themselves benefit more from the «cocoa manna»? Because, as the Minister of Commerce of Ivory Coast Souleymane Diarrassouba underlines, «Our objective is to have a fair remuneration of our cocoa farmer in order to be able to export products which conform to your standards.» Because, each new requirement from the consumer market - certification, zero-deforestation, fight against child labor, level of quality, sanitary standards, etc. - is an additional cost borne almost solely by the producer. «We notice that as some tariffs are lifted, new obstacles appear. Concerning certification, for example, we don’t oppose it, but every day we feel we add a new element that is a constraint. What is the winning return of this certification operation? Does the market return the price? This is not proven. So the fundamental problem is this: we simply ask for transparency, justice in the functioning of the market. Our producers, too, need to live,» adds Luc Magloire Atangana.

«The market», in the case of cocoa, is the futures market of London and New York. They are the heart beat of the cocoa price mechanism. Wherever cocoa is produced throughout the world, its price will be set at a discount or a premium over the price of one of the two futures markets.

«We see that the virtual economy negatively impacts the real economy. We have no visibility on the algorithms that define the price of cocoa,» says Souleymane Diarrassouba. «When you go on the derivatives market or in securities, those who invest in stocks, who know nothing about cocoa, set the prices in the face of prospects or information, whether founded or not. At this level, producing countries do not have a say and have no visibility, which is why we are saying : if things continue like this, if actors who are not interconnected with the reality of farmers, who are unaware of the efforts made in the real economy, help to determine cocoa prices on the basis of derivatives or other products, it will be difficult to solve the problem of prices at the level of producing countries in a sustainable manner.»

And Luc Magloire Atanga to add: «What can justify the magnitude and the steep fall of prices? It is the game of the pension funds, of all these speakers who have nothing to do with the physical reality of the market. It is speculation that has settled on this market. So we must be able to get out of this situation.»

Hence the option currently being considered under the partnership agreement between Côte d’Ivoire and Ghana is to build up stocks in their own producing countries. Others, like Eric Bergman Vice President of JSG Commodities, instead invite producing countries to use futures to cover themselves and hedge. «Right now, they do not do it. In West Africa, they sell their crops forward, but they do not use futures.»

Ivory Coast or Ghana, Nestlé’s shareholder?

Why do producing countries not take a share in the capital of the multinationals so as to benefit from the dividends generated downstream? For the Ivorian Minister of Commerce, «The option could be financially feasible .. Obviously, the multinationals being private structures, it would require a specific shareholding structure.» But to each its role: «Our States have obligations. Most of them follow programs with the IMF and that does not always allows such initiative. But we can encourage economic operators in one way or another to invest in these multinationals and take a share in the benefits generated at the international level so that the cocoa wealth can fully benefit all stakeholders. This option could be part of the strategic thinking on the cocoa sector in each producing State.»

A view shared by Cameroon. «This option is worth looking into, but more for nationals to take a share in the capital of these multinational companies that operate in our country rather than the State. The State has other priorities : the construction of infrastructure, the fight against poverty, health problems, etc.»

There remains the most conservative option and probably the easiest to implement quickly: diversify crops to limit the impact of risks, transform more locally, promote local consumption, develop non-traditional markets internationally and seek to increase direct sales of products to industry, without going through intermediaries. In short, review the sector more than market and pricing mechanisms.

Edward George, Ecobank : Cocoa prices need step changes in thinking

West Africa produces 70% of world cocoa with record crops these past two seasons, even if outturn is estimated to have dropped by 6.6% in the current 2017/18 crop year, with Côte d’Ivoire expected to produce 1.9 million tonnes (Mt) and Ghana 800,000 t, says Edward George, Head of Ecobank Group Research.

International prices have lost around one third of their value since their peak in mid-2016, leaving Côte d’Ivoire and Ghana with seriously misaligned fixed prices. The Conseil du café cacao (CCC) in Côte d’Ivoire was the first to act in April 2017 for the 2016/17 mid-crop and reduce the fixed price to the producer from FCFA 1,000 to FCFA 700 perkilo, a level that was kept for the 2017/18 crop, starting October 1st 2017. As for Cocobod in Ghana, it left its fixed price at 7,600 cedis a tonne. However, bearing in mind the 12% inflation rate in Ghana and the depreciation of the cedi, there was a reduction in cocoa prices in real terms.

For CommodAfrica, Edward George gives his analysis on reforms in the sector in both countries and how price mechanisms can evolve and countries grasp a better share of the final product’s price. One must bear in mind that Ecobank finances about 20% of the cocoa and the value chain in West Africa.

How is reform going in the cocoa sector in Côte d’Ivoire and Ghana and what is the impact on farmer’s price ?

One thing is clear: the Conseil du café cacao (CCC) in Côte d’Ivoire and Cocobod in Ghana have substantially improved farmer revenues. The fixed prices have been generous and have been enforced at the farmgate. Farmers have also improved bean quality because they know they will get more money for their cocoa.

But the problem, of course, is sustainability. Côte d’Ivoire reduced prices early and Ghana was slower to respond, leaving it until the start of the 2017/18 season. This year, the CCC has been stricter with the licensing of exporters, but there is still unhappiness over the export tax (DUS) and the barème which is based on shipping costs. As for Cocobod, investigations into fraud and mismanagement are underway and these have prevented some programmes from being rolled out. Cocobod is also undergoing a comprehensive review of inputs policy and this could lead to important changes on how it leads the sector. Instead of having a monopoly on the provision of planting material, inputs & distribution, Cocobod could outsource parts of the value chain. This could be quite positive for improving efficiency and reducing the financing burden on Cocobod.

But there is a real question mark over the viability of the domestic grinding sector. Very low volumes of cocoa and chocolate products are consumed in Africa. Therefore, to develop grinding there, you need incentives. And how you structure these incentives is the problem. Currently in Ghana almost the entire subsidy to the grinding sector comes from discounting between 5% and 8 % of the light crop beans. But the light crop is getting smaller and smaller in Ghana every season because the main crop is getting better and better. So technically, the subsidy is disappearing.

To have some control on prices following the Abidjan Declaration last April, Côte d’Ivoire and Ghana are looking into storing beans. What is your analysis on this?

It will be a major challenge to pull this off successfully. If one looks at previous attempts to establish cocoa stocks in West Africa, there was Nigeria which tried in the early 2000s to set up a cocoa exchange. The problem there was not setting up contracts, nor liquidity. The problem was that when you bought a contract, you did not know if the beans were actually there in the warehouse, of the right quality, size, etc.

If you want to store cocoa in strategic stocks, you don’t store it in a tropical country. Because you will always have issues with the level of humidity, mould, pest infestation. Moreover, there is the cost of electricity, the sophistication of value chains, etc. It just does not make sense. If you are going to store cocoa for a long time, it’s best to choose a cold country (e.g. Estonia, Netherlands, the UK).

But Côte d’Ivoire and Ghana could have warehouses in Estonia or elsewhere where it is cold, just like large companies have ?

I am sure -I hope- they consider it. But I suspect their vision of strategic stocks involves the cocoa being physically in their own country. They need to have a much more open approach to this, especially because the demand is not in Africa. The demand for cocoa is in Western Europe and North America. So this is where it needs to be stored. And when the market needs it, you release it.

Could Côte d’Ivoire and Ghana go further in their use of future markets ?

Let’s look at how things are working now. In Côte d’Ivoire, anyone who has a licence can buy cocoa beans. But if you want to export, you need to go to the futures auction and get a contract conferring on you the right to export a certain volume of beans during a certain period of the harvest. That is where there was a problem last season when several junior players reneged on their contracts after misjudging the market and prices moved against them.

As for Ghana, they don’t have a future export contract auction, but the entire cocoa value chain is tied to the international futures market. Cocobod has always adopted a more traditional, almost socialistic, model : the body controls the entire value chain. Every bean of Ghanaian cocoa is owned by Cocobod from the moment it is sold -and it has to be sold to Cocobod- to the moment it is exported. So even if you are a grinder, when you grind the beans in Ghana the cocoa still belongs to the Cocobod. In contrast, the CCC is more of an overseer and the cocoa value chain is more privatized and fragmented.

As for hedging in the futures market, Cocobod has its marketing arm, the Cocoa Marketing Company (CMC), which uses hedges like any other actor from the value chain, in particular players like Cargill, Olam & Barry Callebaut. As for Cocobod, it relies on its annual Pre-Export Finance (PXF) facility, which gives it the funds it needs to finance cocoa purchases during the season. As for the CCC, it is regulator so has no direct need to hedge.

Ultimately, are future markets the right place for cacao’s price to be determined as it is so strategic for thousands of people who depend on it to live? Is there another way of thinking for trading cocoa?

I would say no because the whole point of future markets is to deliver efficiency, price discovery and pricing risk. It does allow speculation, but this is essential as speculators provide liquidity. And often the market gets it right, ahead of time.

But in terms of how you manage the right incentives for farmers and grinders, that is a different question. I think both Cocobod and the CCC have got it about right for the farmers at the moment: the fixed price regime is working as far as I can see. But for grinders, the subsidy model is sub-optimal. The reality is that every processing sector in the world has some form of subsidy: protection against other imports, tax breaks, etc. You’ve got to put the right kind of incentive in place so you don’t create a failed business. And if you are not consuming the cocoa products in Africa, then you must have a subsidy for the grinders, otherwise why would they grind there?

Would there be sense for Côte d’Ivoire and Ghana to take shares in companies like Barry Callebaut, Nestlé, etc. to capture some of this value added to the bean?

Absolutely ! This is something I have suggested before to the leading trading houses and offtakers. If they are working with a cooperative why not, at the end of each year, give them a number of shares in your company? Because if all of the value is at the end of the chain, where the consumption occurs, then farmers should try to get a share of the profit there. It is only logical.

It’s a good idea, a bit outside the envelope, because we need to give farmers a bigger piece of the chocolate bar: currently, out of an 18-piece bar, farmers get around 2 pieces. Today most of the cost of a chocolate bar comes from research & development, marketing, because it’s a very competitive market and most consumption is in Western Europe and North America. The reality is that we are not going to create a major market for chocolate bars for Africans. So if we want them to get a few more pieces of the bar, we need to take them from the end of the value chain.

Well, they should get on with it. In the past there have been issues about ownership, legacy entities but also pride. West Africa wants to be seen as standing on its own feet, controlling the cocoa industry and therefore wanting to produce its own chocolate, grind its own beans, etc. But maybe we need to be more pragmatic and recognize that if Africans don’t consume chocolate, let’s get a piece of the profit where the consumption actually occurs.

How many years do you think it will take to see West Africa actually eating chocolate ? Programs are being developed for children in school to consume chocolate...

In Ghana and Côte d’Ivoire, many kids eat chocolate spread on bread or toast in the morning, some drink chocolate milk, it can be quite common.

But there needs to be a step-change with a focus on developing new products for African tastes. For example, milk chocolate melts in tropical climates. Fine, forget it then! But with cocoa beans, you can make soups, spicy soups, biscuits, cakes, whatever fits African eating habits. How many African grandmothers living in their village have a great local recipe that no one knows about? Because if the cocoa product fits the actual eating habits of Africans, they will start consuming it. My view is stop focusing on chocolate and do something entirely different. Cocoa can even be pushed as a health food because the fat in cocoa beans is known as being healthier than other kinds of fats like palm oil.

If Africans start consuming more of the cocoa they produce, they will exert market power. Look at Ethiopia and coffee: it is the largest producer of coffee in Africa, high quality, but it is not the largest exporter because the country consumes 40% to 50% of its own coffee. One can imagine Côte d’Ivoire saying: we are consuming around 300 000 t of cocoa, so you can only export this much. This is about exerting market power, not just taking any price offered.

Should Côte d’Ivoire and Ghana be afraid of other producers rising, in Latin America for example?

Well, I am keeping a close eye on what is happening in Ecuador and Peru. The whole plantation model is fascinating. If Latin America can produce volumes and reach yields of 1.5 or 2 t/ha, West Africa will lose its advantage as a mass producer of raw beans. And that could affect the whole model of cocoa production in the region.

With 47% of world production, Côte d’Ivoire is comfortably seated in the driver’s seat of the global cocoa market. Each of its declarations, its initiatives, each climatic, social or political event is felt on the market. Yet, it believes that it does not have a hold on the market. A situation that Abidjan intends to change.

For the second consecutive season, Côte d’Ivoire is heading towards a record harvest of around 2 million tonnes (Mt), becoming more than ever the world leader on the cocoa scene. But as the fate goes on commodity markets, the weight of Ivorian cocoa is such on the world supply that this success, as a corollary, contributes to the fall in world prices, even if they have recovered since the end of January. A fall that impacts both the Ivorian producer and public finances at a time when Ivory Coast is undergoing deep economic changes requiring much investments.

So what can Côte d’Ivoire do ? According to some, it would aim for a production that goes down and stabilizes around 1.8-1.9 Mt. Over the last 10 years, it has increased from 1.6 Mt to more than 2 Mt in 2016/17; it is expected by the Coffee and Cocoa Council (CCC) to be at 1.9 Mt this 2017/18 campaign.

That said, the Minister of Agriculture Mamadou Sangafowa Coulibaly, interviewed by CommodAfrica (read his interview), denies having quantified objectives. «Over the next 5 years, it is all about producing but producing better. We do not dare to give volume targets, our objectives will always take into account the international demand for cocoa.» But he clarifies, «Our production will stay in the trend it has experienced in the last 5 years, but it will be reduced because of the vast programs we are conducting.»

A short-term automatic impact

These programs include, first of all, the eviction of cocoa farmers who illegally cultivate in some 200 national parks and protected forests in Côte d’Ivoire. This would represent about 7,000 producers and, according to some estimates, up to 30 or even 40% of the national production. A challenge of size. «In five years’ time, we will have to remove all the producers who are in the classified forests in order to have a more intensive and environmentally friendly production. We now think that cocoa production can be associated with the forest. We are going onto agroforestry programs.»

In January, Côte d’Ivoire launched its Cocoa-Forest Initiative, part of ‘Zero Deforestation’ program, an option of the REDD (Reducing Emissions from Deforestation and Degradation) strategy adopted by Côte d’Ivoire in November 2017. As early as 2015, the CCC had launched a roadmap entitled «Cocoa, friend of the forest» which was included in its guidance note policy for COP 21 in Paris. The Cocoa-Forest Action Plan was adopted in 2017 by Abidjan and presented in Berlin in November at the 23rd Conference of the Parties on Climate Change.

Another measure that impacts production is the announcement made by Côte d’Ivoire in January 2018 to move up a gear in its fight against the disease «swollen-shoot» ; it launched the program of intensifying the uprooting of orchards infected by the swollen disease shoot. The disease has been present in Côte d’Ivoire since 1943 with a rise in its most virulent forms in 2003. Hence the launch of programs to fight against this disease of cocoa: from 2008 to June 2017, 17 885 ha of infected cocoa trees were destroyed and 5,487 ha already replanted. The new program aims to uproot 100,000 ha (from a national cocoa area of around 2 million hectares) of cocoa affected by the disease over the next three years, which would amount to 150,000 t of cocoa. However, the program plans to replant the cocoa equivalent, with the objective of substituting healthy plants for diseased plants. Therefore, in the long term, after a normal period of reduced grubbing production, the volumes would return to the same or higher levels with younger and possibly improved seedlings.

Another measure that will undoubtedly impact the volumes in the next campaign is the announcement in March by the CCC to ask the major chocolate manufacturers established in Côte d’Ivoire such as Nestlé, Mars and others, to stop distributing highyielding seeds and high quality hybrid cocoa plants, at least for a time. During this break, the CCC should conduct a census of cocoa (and coffee) orchards in Côte d’Ivoire.

The planter on the front line

As a backdrop to all this, the planter saw its guaranteed price go from FCFA 1,100 per kilogram in September 2016 to FCFA 700 from April 1, 2017, at the start of the mid-crop. The 700 francs was the price confirmed for the entire 2017/18 campaign, main and mid-crop. The objective is, of course, to be more in tune with world prices plummeting by more than 30% in 18 months - even if they have resumed since the end of January 2018. But the indirect consequence is to demotivate planters and especially young people who might be interested in the sector. De facto, this could therefore reduce production, as farmers can turn to other more lucrative crops such as cashew, rubber or even food products.

When the fixed guaranteed price in Côte d’Ivoire falls, usually cocoa farmers in the East of the country sell, fraudulently, their beans in Ghana, when the price is higher, which has been teh case since the start of April 2017. But this option will no longer be possible or at least should be more difficult in the future as the the Heads of State of Côte d’Ivoire and Ghana signed in March the Abidjan Declaration with the aim of getting closer and, in particular, to «harmonize their marketing systems so as to offer prices. roughly the same as the producers in both countries,» explains Minister Sangafowa Coulibaly. «Ideally, we should be in line so that the Ivorian producer will have about the same price as the Ghanaian, all of which, of course, is connected to the market». The objective for Côte d’Ivoire is for the planter to get at least 60% of the world price.

Processing, storage, consumption

Beyond this, the long-term objective is to raise local processing to 50% of national production by 2020 and, ultimately, consumption.

«We are now focusing on transformation. We call on all investors and very often, you now have investors who are not necessarily European and who are interested in processing cocoa locally and exporting the products. semi-processed -masse, butter, cakes, liqueur- in their countries [...] On-site processors are also encouraged to make full use of their installed capacity. Côte d’Ivoire produces 2 Mt so the goal is to reach in 2020 at least 900,000 t,» Trade Minister Souleymane Diarrassouba told CommodAfrica at the World Cocoa Conference in Berlin at the end of April. He then «greeted the AfDB and the World Bank, who are supporting us to build infrastructure that will allow us to transform but also store cocoa. The idea is not to have a buffer stock, but to have certain elements so that our production or our interventions are not neutral at the level of the determination of international prices.»

And why not tax raw beans exports ? The Minister of Agriculture Sangafwa Coulibaly is considering the matter. «You do not have to tax those who process locally, and in cocoa, the more you process, the less you pay taxes. But we need to tax the products that are exported raw. But if we tax them, the price to the producer is no longer the same as when the raw material is not taxed, which is why we said that, with Ghana, we need to harmonize our tax policies to encourage the processing of our products.» Note that in July 2016, taxes on cocoa butter had been lowered from 14.6% to 11%, from 14.6% to 13.2% for mass and from 14.6% to 9.6% for powder.

The focus is also put on diversifying cocoa farms. «I think it’s up to us to diversify our sources of income and our markets for the sale of our products,» says the Minister of Commerce. «We need to start promoting consumption at the level of our countries and regions and we need to go to other countries, especially emerging countries where we can sell cocoa, and we must explore the possibility of having direct sales. Because today we go through traders and we are less in direct contact with the the final buyer which is the industry.»

Ghana : Why are cocoa companies still given incentives ?

Cocoa producers in Ghana are losing interest in cocoa farming and their land is going to illegal mining. So we all need to work on cocoa prices, says Jospeh Boahen Naidoo, chief executive of the Ghana Cocoa Board to CommodAfrica, just like VAT or anti-trust laws. Because if the cocoa industry breaks down, so will the chocolate industry.

What is your analysis on future cocoa price trends?

My own take is that prices will go up slightly but not much. Prices have been driven technically; the production element has actually not come in. In the West African region, Ghana and Côte d’Ivoire, which account for more than 60% of world cocoa, are facing challenges. In Ghana, for instance, the cocoa swollen shoot has actually taken more 17% of the tree stock, already devastated. And you also have 2 or 3% of tree stocks aging. All of these trees need to be cut and replanted. This is a challenge because once you cut a cocoa tree and replant, it takes about seven years or so before it starts producing again.

With the falling price and lower incomes for the farmers, most producers have lost interest in cocoa farming. It is not attractive to the youth and those who are already aging -the average cocoa producer in Ghana is 55 years- are losing interest and giving their land for illegal mining or convert their cocoa farms into rubber and cashew farms.

Hence, cocoa production in Ghana is under threat. This is why we are putting some measures to strengthen efficiency on existent cocoa farms so that farmers can increase their productivity. This is what we have been doing in the last one and a half year, since my appointment at the head of the Cocobod : move farmers from low productivity to higher productivity on the same piece of land.

You considered a few months back to stop having a fixed guaranteed price to cocoa farmers and then you changed your mind. What happened?

Farmers have already lost interest so if you reduce the price, it is as if you were asking them to leave cacao farming. With the onslaught of illegal mining -what we call in Ghana «galamsey» which means illegal small-scale gold mining in Ghana, we had to keep the price where it was. Illegal mining means that not only they strain the environment but also the cocoa sector. Because wherever the soils are good for cocoa in Ghana, you are also likely to find alluvial gold. So when farmers lose interest, they readily sell their land to miners. And you need to avoid that and not reduce the farmer’s price.

But if your reduce the volumes, prices will go up. And if you consider what is happening in Ghana and in Côte d’Ivoire with illegal cocoa plantations in protected forests and the swollen shoot, volumes should go down and prices up...

The problem is that cocoa is a botanical crop. It’s not like oil where you stop pomping. Once the tree starts fruiting, you cannot stop it. And if the producer stops cocoa, then illegal mining starts and destroys the land.

Concerning the agenda with Côte d’Ivoire, what are the two or three main points that are on the short term agenda?

The partnership, basically, is about pricing -because the gap between the producer and the industry is so huge- and see if we can harmonize our trading systems because Côte d’Ivoire and Ghana have different systems. Also, we want to check cross-bordering smuggling of cocoa. It is very difficult to control the border because it is forest and because we are talking about more than 600 km border line. You cannot have the police everywhere.

So price harmonization would be the answer?

Yes, we want to harmonize our price and also the announcement of the prices so that nobody can speculate and smuggle. Also, we are trying to see if we can bridge the price gap, what motivates people to smuggle. We have done this for fertilizers, so we are trying to see if we can do that for cocoa.

But I would also like to add that the cocoa price for the farmer is something all of us need to work on. The improved management for farming, fair trade and all matters of certification are being taxed on the farmer. People are even calling for organic farming and so forth. It’s endless! The farmer is being told you need to do this, not this, not that, etc. But all of this has a cost for the farmer and the consumer must be prepared to pay for it. Otherwise, it will become difficult for the farmer to survive in the value chain.

There are propositions concerning the use of VAT in consuming countries to help out producing countries and also do something about anti-trust laws? What is your feeling on both matters?

Anti-trust laws work against us. Every time we meet the industry and we want to talk about price, they say: no, no, you cannot touch it. Even when we were talking about the Cocoa Forest Initiative in London, one person proposed that we should bring about a fair price. But this was removed from the articles because of anti-trust law.

The initiative has to come from Europe as it is a mutual, win-win situation. Should the cocoa industry break down, the chocolate industry will also collapse. The cocoa sector is the weakest link of the value chain and we all have to make sure that this link does not break or else farmers will abandon their farms and go into other crops. And it is already starting in the middle part of Ghana where everybody is going into cashew. 10 years back, everyone was in cocoa. This should be a strong signal to the industry in Europe and America.

Ghana is the 2nd world cocoa producer, so why not take a share in Barry Callebaut, Nestlé, etc?

It’s something that Ghana is considering. I have been discussing it with my Board Chairman and even with the President. You know I have been in office for one and a half year only...

What is your position regarding the cocoa industry in Ghana and the incentives that they receive?

In Ghana, the local factories like Cargill, Barry Callebaut, Olam are all given a 20% discount on beans just to motivate them... ! We gave it to them as incentives to build factories. On top of that, they are located in the Free Zone and so they have tax holidays and sometimes no tax to pay. Some of these groups have been in Ghana for a long time now, 10 years, 15 years. It means that we are sacrificing, we are not taking anything, and we are still giving them a discount just to motivate them.

So you could stop the incentives?

This is something we may need to consider.

What is the consumption of chocolate in Ghana?

It is very low. We are not even up to 1.5 kg/ha. We need to change this and we are starting in September the school feeding program. All of the schools will be served with cocoa.

Nigeria, Côte d’Ivoire, Cameroun are all starting this...

Yes. Each country has decided on its own to embark on this. With Côte d’Ivoire, we have been exchanging ideas because of the engagement we have and one of the decisions the two countries have taken is to increase local consumptions, starting with the children. Because cocoa and chocolate have nutrient benefits. We want children to benefit from it and also develop the taste for cocoa so that we can have a local market and not always look out for export markets.

Nigeria embarks on a ten-year cocoa plan

Nigeria embarks on a ten-year cocoa plan

Cocoa is one of the diversification products of the Nigerian economy. A ten-year plan is being drawn up with the aim of developing the important national market via schools. Investors are already involved.

«For the first time, Nigeria has developed a ten-year cocoa plan that has already been endorsed by the International Cocoa Organization (ICCO) as part of the Global Cocoa Agenda and is expected to be officially launched this year by the head of State Muhammadu Buhari», announced the president of the Cocoa Association of Nigeria, Sayina Riman, at the World Conference on Cocoa held in Berlin in late April. «At the same time, we are running a program to promote consumption.»

This 10-year program, approved by both the public and private sector, provides a calendar of actions to be conducted each year, as well as an annual assessment of the operations carried out or not and the objectives. «Its budget is important and will be financed by the international community, the government, the private sector and all those who wish to contribute,» says to CommodAfrica the manager, without however wanting to specify the amount since the Plan is not yet finalized. That said, he points out, since it is the cocoa sector which, among other things, financed the development of the oil sector in the 1970s, the latter should participate in the revival of cocoa, possibly as 0.5% of the price per barrel.

250 gr of cocoa per day

The recent crisis in the cocoa market, with a vertiginous drop in world prices for 18 months, does not seem to frighten Nigeria. «Our goal is not to produce for the international market,» says Sayina Riman, who proceeds with a quick calculation: «Our population is about 200 million people and if only 20% of this population consumes as little as 250 grams of cocoa a month, not a day, not a week, but a month, we will use up more than 50% of our current production to cover our domestic market.»

But is is difficult to know for sure how much cocoa is produced in Nigeria. According to Sayina Riman, it would be 290,000 tonnes (t) this 2017/18 season, with an expected intermediate crop increasing 15% from last year, when the drought had heavily impacted the orchards. However, the ICCO estimates the harvest at 225,000 t. Coca in Nigeria also encounters problems of quality: there would be up to 140 beans per 100 gr during the last main season, reports Reuters, while a quality cocoa normally has 100 beans per 100 gr. By comparison, the Cocoa-Coffee Council (CCC) in Côte d’Ivoire gives a tolerance of up to 105 beans per 100 gr.

A glass of chocolate for children

To develop local consumption, the Nigerian authorities are targeting schools to develop very early, among the youngest children, the taste of cocoa and chocolate. Ghana, Cameroon and Ivory Coast are doing alike. «Our approach is not to target the population aged 15 and over, we want to touch the little ones and cocoa is a daily drink in public and private pensions and schools.» Cocoa is to be included in Nigeria’s Food Program, he said.

Moreover, with the return of economic growth in mid-2017 and especially this year, demand for chocolate and confectionery has resumed its flight in Nigeria. Mars would have benefited the most, with a market share of 39% last year, according to Euromonitor, taking advantage of the popularity of its brands Mars, Snickers, Bounty, Twix, etc. The analyst estimates annual growth of the national market at 5%, boosted by a rise in the number of expatriates, an increase in the middle class and the development of modern shopping centers.

As for investors, «We will create a sustainable and attractive cocoa market for companies like ‘Dangotes’ to want to invest in it immediately.» Olam has already expressed interest in the cocoa program, according to Sayina Riman. It should be noted that in addition to the bean trade, the Asian giant already has a processing unit in Akure, which employs around 500 employees. For its part, Nestlé supplies 80% of its cocoa powder needs locally, reported Business Day at the end of May.